Obamacare Small Business Compliance: An Update
Much has been written about the Affordable Care Act (ACA) and what it does, but perhaps the best feature of the ACA for small businesses is what it does not do: require them to choose between offering their full-time employees ACA-compliant coverage or making Employer Shared Responsibility payments.
Only Applicable Large Employers that average over 50 full-time employees a year have to make that choice.
Nevertheless, there are important positive benefits as well for small employers that do wish to offer coverage. They should not be overlooked. These benefits include:
First, employers with fewer than 50 full-time equivalent employees can buy health coverage for their employees through a state or federal Small Business Health Options Program (SHOP) Exchange. Insurance purchased through a SHOP Exchange should be cost competitive, the employer can decide the amount to contribute towards coverage, and coverage is guaranteed to be ACA-compliant.
Second, small employers that employ an average of 25 or fewer full-time employee equivalents and obtain employee coverage through a SHOP Exchange may qualify for the Small Business Health Care Tax Credit if they meet certain requirements.
Third, self-employed individuals may enroll in individual Marketplace Exchange coverage and may be eligible for a Premium Tax Credit depending on their net income and family size. Self-employed people who would normally have difficulty obtaining reasonably priced insurance, or any insurance at all, no longer have to rely on their spouse's employer coverage or cling to a job because of the benefits.
Fourth, employers that obtain group health coverage through an insurer will not be responsible for navigating the technical requirements of the market reforms added by ACA (such as coverage that does not exclude pre-existing conditions). It is the insurer's responsibility to design and provide coverage that meets these additional standards. Small employers are exempt from penalties attributable to the insurer's noncompliance.
It is also up to the insurer to satisfy new coverage provider information reporting requirements, to report and pay PCORI fees, to pay any "Cadillac Plan" tax (applicable to plans that cost more than $10,200 a year for single coverage or $27,500 for family coverage).
The PCORI fee supports the Patient-Centered Outcomes Research Institute through a trust fund. It is also imposed on issuers of health insurance policies.
A number of employers, both large and small, are seeking ways to accommodate and comply with ACA while maintaining their current plans or offering new health coverage to their employees.
Here are a few options for health insurance coverage for employers averaging under 50 full-time employees:
- No employer coverage for any employee. The owners and employees will have to obtain individual coverage to avoid individual shared responsibility payments.
- SHOP Exchange coverage. As mentioned earlier, for employers with 25 or fewer FTEs, a small business tax credit is available for SHOP coverage.
- Group plan coverage with purchased insurance. Compliance, reporting and excise tax burden is mostly on the insurer.
- Health Reimbursement Arrangements. An HRA integrated with employer coverage to pay deductibles and co-pays is permissible as long as it is integrated with ACA-compliant employer coverage. Otherwise, HRAs have to be limited to retirees-only, excepted benefits, or single-employee plans.
- Self-insured group plan coverage. The employer has the compliance burden for the Market Reforms, coverage provider reporting, and paying the PCORI fees.
- Reimbursement plans. The new prohibition (and resulting penalties) against reimbursement plans was the subject of an earlier column. However, businesses with a plan that includes only one employee can continue to use a reimbursement plan to pay for individual coverage. S corporations can continue to use reimbursement arrangements for 2-percent-plus shareholder-employees, and the existing deduction rules remain the same.
- Individual Marketplace coverage. Self-employed individuals can use the ACA Marketplace Exchange for individual coverage. They might qualify for the premium tax credit, and can deduct the unsubsidized portion of the premiums.
- Retiree plans. Stand-alone retiree plans can still use premium reimbursement plans, and such coverage can count as minimum essential coverage for the retiree. The employer must report under the coverage provider rules.
- Excepted benefit plans. Plans that only offer coverage for excepted benefits (such as vision-only, or dental-only plans) are relatively unaffected by ACA market reforms.
- Religious employer exemption. Religious employers (both non-profit and closely held for-profit) can claim an accommodation for contraceptive coverage.
